The Impact of Internet Referral Services on a Supply Chain

The Impact of Internet Referral Services on a Supply Chain

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Article ID: iaor200920429
Country: United States
Volume: 18
Issue: 3
Start Page Number: 300
End Page Number: 319
Publication Date: Sep 2007
Journal: Information Systems Research
Authors: , ,
Keywords: information, supply & supply chains
Abstract:

In many industries, Internet referral services, hosted either by independent third–party infomediaries or by manufacturers, serve as digitally enabled lead generators in electronic markets, directing consumer traffic to downstream retailers in a distribution network. This reshapes the extended enterprise from the traditional network of upstream manufacturers and downstream retailers to include midstream third–party and manufacturer–owned referral services in the supply chain. We model competition between retailers in a supply chain with such digitally enabled institutions and consider their impact on the optimal contracts among the manufacturer, referral intermediary, and the retailers. Offline, retailers face a higher customer discovery cost. In return, they can engage in price discrimination based on consumer valuations. Online, they save on the discovery costs but lose the ability to identify consumer valuations. This critical trade–off drives firms' equilibrium strategies.

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